While most Corporates have adjusted their resource planning in the present economic scenario, the Industry assumption is that a fall in rate of growth is imminent — from the 26% of the last six years — to less than 20% now, though the Pharma sector is not likely to be huge “tailwind,” according to A. Balasubramanian, CEO, Aditya Birla SunLife AMC Ltd (ABSAL).
Highlighting the first of its kind in the world “re-categorisation” exercise conducted by SEBI and the Indian Mutual Fund Industry, Balasubramaniam said this exercise is taking place at a time when the industry is at the “cusp of big growth”. “The Indian regulator is ahead of the curve and has always been proactive in streamlining the Indian Capital Market while protecting the best interests of investors and distributors in many areas,” he said.
Maneesh Dangi, Co-CIO, Fixed Income, (ABSAL), said steel consumption has scaled new heights, hinting at strong undercurrents to the recovery in the investment cycle. “Railway freight also posted very strong growth even as port cargo growth declined slightly from the highs. Recent employment data also suggests continued positive momentum, despite PMI services declining for the third time since November 2017,” he said.
Speaking on ‘Microview of Global Economy,’ he said “The ‘weakness’ in Europe is spreading to China and across Asia, though local economic issues including demonetization are behind us. Local factors suggest that the Indian economy is doing well and the growth that was expected in 2018 peaked in early – due to U.S. President Donald trump’s ‘rhetorics.’”
“However, the U.S. is doing well despite inflation having spiked up, while developed economies are faring far better than the emerging world. Trump is experimenting with higher fiscal deficits – leading to more borrowing — and loading more demand on an economy (and U.S. dollar) doing well. However, the markets are ‘jittery’ and there is more anxiety in FOREX market today. Lots of money flow happened in last one-and-half months — including where China was a large supplier of capital through buying, but is now witnessing large “flight” of capital now.” he said.
“Emerging markets are coming under pressure and the +epicenter+ is in China due to economic slowdown under pressure, while the U.S. is willing to let the currency depreciate rather than let in imports. Global markets are turning ‘malignant’ but China, India’s currencies are ‘sound.’ Crude oil is ‘deteriorating’ India’s balance sheet where 3-3.5% of its positive GDP went towards paying for it. However, India’s once-dropping CAPEX is beginning to recover due to capacity utilization and Banks’ growth of 100 to 150 basis points despite displacements.”
Viewing the next six months, he said “Money should be parked in Funds, even if you don’t want to take a risk as interest rates going up means we are in a better state. Where corporate bonds (Triple A and Double A) are concerned, we are in a good trading environment as the RBI is being ‘cagey’ due to the changing global inflation and environment. Banking ‘churn’ continues and they have to access the capital markets – including bond markets – while going through a ‘turmoil.’ In the near term, it’s bad for India’s NBFCs exploiting the retail sector in India.”
Mahesh Patil, Co-CIO Equity, (ABSAL), said the Indian market volatility has subsided and is fairly ‘benign,’ while reflecting the NIFTY. “However, volatility was observed in global currencies except for the U.S. and Japan which got positive returns. Emerging markets are witnessing recovery in growth and returns after the 2016 ‘crisis.’ Crude oil showed divergence and is adverse for India. China – despite U.S.-China ’ trade wars’ — has been doing a balancing act and looks fairly stable as it is quick to take corrective action, Europe is facing temporary ‘slowdown’ in economic growth. But the equity markets are fairly resilient.” he said.
Noting that the Indian FDI flows have been very strong though the run rate slowed down this year, Patil said India has US$ 400 billion FOREX reserves. However, the Rupee ‘depreciation’ against some trading currencies will have some impact on the market and could witness ‘flight of capital’ from the market, he said adding “The impact of Demonetisation, GST is behind us and companies are looking at growth in 2019 alongside rural sector margins improving due to investments and related products rising prices. From near term perspective, construction activities are picking up as, being election year, the market will see better spending from Government.”
“With Gross NPAs at Rs 9 lakh crores, the Government will commit to Rs 3 lakh crores spending , especially in the power sector. Elections are another concern for the market and will cap the upside in market in a big way. If the next one year sees economic momentum picking up – despite political instability, then the economy will sustain itself (as past experience showed). Balance funds have seen a sharp slowdown. Equity has slowed down, real estate is witnessing subdued outlook and land prices will not go up in the next 2-3years,” he said.
Where earnings are concerned, India is lagging behind global growth but will start attracting foreign investors and the Government is looking at raising a lot of money this year, he said while pointing out that PSUs and Corporate banks showed losses but private banks continued to grow by 20%, IT sector still remained subdued at 7% growth, and Cement remained a ‘laggard’ with muted growth due to pressure in pricing. FY18 will close at 7.5% growth and good growth in 2019 from Pharma (fairly strong growth showing opportunities where we would like to play), MBFCs, Power, Auto (25% growth), Cement (25% growth expected with volumes picking up and capacity utilization moved up) and Telecom, Patil said.
“Big inbound in earnings is expected next year. In the NIFTY, top five companies have contributed majorly — two-thirds – in earnings upto June 2018, despite the market being ‘shallow.’ Out of the BSE 500 companies, 250 companies have ‘fallen’ and correction occurred in large and Mid-cap space. So now market is looking attractive in the Mid-cap space. Spend on rural sector will be ‘stronger’ due to political scenario and consumption will be customer-discretionary,” he said, adding “NBFCs are seeing some pressure on margins. The Oil & Gas sector has very strong refining outlook going forward, while metals space is seeing fairly comfortable earnings with prices quite firm despite witnessing 2-3% corrections. So Outlook remains positive.”
